Real Estate Values and Starbucks

Since comparing everything to Starbucks (affectionately known around my house as Star-yucks) seems to be one of the better ways of getting the message through here it is.

The statement from the client: I know the appraised value is way too low! The house down the street sold for $400,000 and it doesn't have tile floors or solid surface counters! And we have a finished basement. Why is mine only valued at $360,000? I have a nicer home!!!

Picture yourself standing in line at Starbucks looking at the menu. Frozen drinks are one price, hot drinks another, and ice cream and bottled drinks have other prices. Even among hot drinks there are lattes, coffees, espressos, and coffee alternatives like chai latte. Then to really take it to another level you have tall, grande or vente.

Now among espressos there are multiple choices such as straight espresso, espresso machiato and espresso con panna. Why is it that an espresso straight and an espresso with cream or foam is the same price? This is comparable to houses of comparable size but one has solid surface counters and tile floors instead of vinyl. Hint: appraisers don't get to go inside of your neighbor's house - only yours. The appraisers have no idea what the inside of the comparable looks like - they can only go by recent sales. 

One very important thing to keep in mind that is with each drink the larger the size the higher the value although a vente iced white chocolate mocha sells for more than double the price of a vente Tazo iced white tea. Compare this to homes of the same size but different external constructs such as four sided brick compared to vinyl siding. 

Keep this in mind also: In the Atlanta area if any one wall of a room is "below grade" it is limited in the value that can be allowed for those square feet. So if the maximum allowable for "below grade" square footage is (for example) $30 it doesn't make much difference in the overall valuation of the property.

Comparables are considered by (a) most recent sale of the (b) most comparable property in external construct and overall heated above grade square footage and (c) the number of beds and baths. 

So what about Automated Valuation Models? Would you go to MacDonald's and look at the menu to get a price on a Starbuck's menu item? Or would you expect a website with a copy of the Starbuck's menu from 2004 to provide a reasonable 2007 value?

Lenders like Novation depend on credentialed real estate appraisers to provide accurate values based on several tasks which they perform over a several hour period. I recommend you do likewise. If you really want to know the value of your property hire a professional, certified appraiser.